December 02 , 2016
In a divorce, the first step in dealing with real estate issues is to determine the value of the property. A real estate valuation may be performed by a Realtor at very little cost. Equity is the true value of the asset to the parties. It is determined by subtracting any loans secured against the property from the properties’ market value. In many divorce cases today, properties have negative equity (i.e., loans exceed the value). In addition, people may be experiencing difficulty making their payments and properties are “in distress” (i.e., in risk of foreclosure).
In a financial settlement in divorce proceedings, if the real estate is awarded to one party, the other party must be compensated for their share of the marital equity. Conversely, as in many cases today, one or both parties are left to manage the negative equity, or debt, associated with real estate.
When a property has equity and payments are current, options to consider are:
* Could also involve transfer of other assets as compensation for equity When a property has negative equity and possibly in distress, a few options to consider:
Once a value has been determined, tax implications have been considered, and an agreement has been reached as to who keeps and/or manages the marital property, buying or leasing a new home will be a consideration for one party in a divorce. A financial professional with real estate expertise can help come up with the best strategy given the settlement terms and its impact on one’s future cash flow.